Analysis
With the specter of failure looming, the Transitional Committee adopted a last minute, hard-fought package of ‘take-it-or-leave-it’ recommendations for the new Loss and Damage Fund (LDF) and its funding, which need to be approved at COP28. Why is no one happy with it? And will COP28 approve it?
A section-by-section summary of this article is available here: "What to Know about the Transitional Committee's Final Meeting."
With the specter of failure looming, the Transitional Committee (TC) at an impromptu fifth meeting in Abu Dhabi in early November almost last minute adopted a hard-fought package of ‘take-it-or-leave-it’ recommendations for the new Loss and Damage Fund (LDF) and funding arrangements, which now need to be formally approved at COP28. The compromise outcome, which ends the TC’s mandate, left developing and developed country constituencies both dissatisfied, albeit not for the same reasons. The package deal could still face reopening and renegotiation in Dubai, because the United States as the only hold-out challenged the consensus of the decision initially, although US State Department officials have since confirmed that they accept the package as approved. It also has many observers doubt that what was agreed is really ‘fit-for-purpose’ to deliver climate justice to impacted local communities and often marginalized people in developing countries already suffering from catastrophic and compounding losses and damages. One main concern centers on the controversial placement of the LDF with a dedicated new Secretariat under the World Bank as a hosted Financial Intermediary Fund (FIF), at a minimum for an interim period of four years, but pending fulfillment of a set of conditions, potentially forever. And the failure of the process to secure a commitment by developed countries to lead in capitalizing the new fund carries not only the risk that the LDF remains an empty shell, but has also serious repercussions for ongoing climate finance negotiations under the Paris Agreement, including for a new climate finance goal post-2025.
The two-day meeting in Abu Dhabi November 3-4 was hastily convened by the incoming COP28 Presidency after the TC failed at its scheduled fourth and last meeting October 17-20 in Aswan/Egypt to secure an outcome by bridging divides on a number of outstanding issues between developed and developing countries, 13 of which had been highlighted then in a scenario note for TC4 by the TC Co-Chairs Richard Sherman (South Africa) and Outi Honkatukia (Finland). Chief among them, and at the center of the last ditch efforts at TC5 for consensus on outstanding issues, were the location of the new fund and its dedicated, independent secretariat, as well its sources of funding and financial inputs.
The following analysis looks at how the three-part TC outcome package concluding the TC process (with a draft decision to operationalize the Fund and the funding arrangements, the draft Governing Instrument of the Fund as Annex I, and the draft recommendations for the funding arrangements as Annex II) dealt with those outstanding issues identified at TC4 and other relevant questions, either through compromise language or by delegating some issues for future resolution to the LDF Board and Secretariat to be addressed in the process of fully operationalizing the Fund.
Sections
"Take-it-or-Leave-it" TC Package
Location of the Fund and its Dedicated, Independent Secretariat
Designation as Operating Entity and Relationship to COP and CMA
Sources of Funding and Financial Inputs
Board of the Fund, its Composition, and Functions
Interim Secretariat and New, Dedicated Secretariat
Scope and Structure of the Fund
Complementarity, Coordination, and Coherence
Recommendations on the New Funding Arrangements
Next Steps at COP28 and Beyond
"Take-it-or-Leave-it" TC Package
A first proposed co-chairs’ text, as starting point for the negotiations in Abu Dhabi, listed both the options for a standalone fund, as demanded by developing countries, and for the World Bank-hosted FIF, which was pushed by developed countries and a red line for the United States. The latter option highlighted a number of conditions aimed at increasing developing countries’ comfort with the hosting arrangements, such as allowing for direct access for developing countries to Fund resources and the use of implementing entities beyond the multilateral development banks (MDBs) and UN agencies normally allowed under the FIF framework by the World Bank.
On financial inputs, the text included two options as well. One indicated the developed countries’ view that in accordance with the decisions at COP27 (2/CP.27 and 2/CMA.4) financial inputs to the LDF are to be based on cooperation and facilitation only, but cannot be understood as a historic responsibility. Especially the United States, but also other developed countries including Germany and Australia, had made it clear in previous meetings and workshops under the TC process that in their understanding there was no financial obligation for developed countries under the UNFCCC and the Paris Agreement to provide support for loss and damage, with the United States in Paris insisting on language explicitly excluding liability or compensation for loss and damage. The second option on financial inputs reflected the developing countries’ insistence on a clear differentiation between developed countries’ obligation to provide funding as a historic responsibility, in line with the core principles of the Convention of equity and common but differentiated responsibilities and respective capabilities (CBDR-RC), and the voluntary nature of potential contributions by other countries as allowed under Art.9.2 of the Paris Agreement, in additional to financial inputs from other, including alternative or innovative sources.
The initial three-part text package for a draft decision to operationalize the Fund and the funding arrangements, a draft Governing Instrument of the Fund (as Annex I) and the draft recommendations for the funding arrangements (as Annex II) included a number of placeholders, as well as many text elements still in square brackets, denoting either disagreement in other areas (such as on scale or scope of the Fund) or options indicating different pathways depending on decisions on the two main outstanding issues.
Over two days, the Co-Chairs introduced several iterations of the negotiating text (not all of them shared publicly) in an effort to find broad consensus. Discussions in between, and on various text options and revisions were largely held away from public and observer view (and the webcast) in repeated constituency meetings for the Co-Chairs to assess developing and developed countries’ respective flexibility and willingness to compromise. They were complemented by TC members-only closed door discussions without the Co-Chairs, some small group huddles as well as bilateral consultations, including targeted efforts by developed countries to break up the unity of developing countries. Such backroom discussions, while unfortunately not rare in climate negotiations, nevertheless undermine the transparency, accountability and ultimately legitimacy of the process and put into question the validity and balance of constantly evolving and changing iterations of the outcome package or specific text fragments, with certain parts or references disappearing, new language seemingly appearing out of nowhere and requested edits not being reflected. Thus, in the name of finding compromise, text got compromised. One unfortunate victim was the failure to re-introduce a reference to human rights in the draft Governing Instrument’s section on the objective and purpose of the Fund, despite the request of several TC members from both developed and developing countries in open plenary to do so, with no objection publicly stated.
The text version ultimately adopted as the TC5 outcome package was introduced as a ‘take-it-or-leave-it’ package late in the evening of the second and last meeting day, with limited time for constituencies to consider their willingness to accept the text without further changes. The Co-Chairs indicated that if the members could not agree, the TC would only advance a procedural report, but not recommendations to the COP28. In the concluding plenary (which was webcasted), speakers from developing countries (including from Antigua and Barbuda, Egypt, Brazil, Pakistan, Timor-Leste, Maldives, Bhutan and Colombia) pointed out a number of concerns with the text, chief among them a failure to indicate the scale of the new Fund and to confirm the financial responsibility of developed countries, but indicated their willingness to move forward with the text in the spirit of compromise. They stressed that the package deal meant no further text edits were possible and pushed back on efforts by the United States to propose last minute new language that would have clarified even stronger in the decision text, including through an additional footnote, that all financial inputs to the Fund were voluntary. Several developed country members, most prominently from Denmark and Germany, while supporting the American text interpretation and professing own unhappiness with a number of elements of the proposed final text, made it clear that they also considered the text to be a package and did not support the suggestion by the American TC member to only forward the annexes, and not the decision text, to the COP. It was clarified that parties could provide concerns and reservations to be noted and reflected in the Co-Chairs' report to be forwarded with the text package. After Co-Chairs asked several times whether there were any objections, the text was then adopted, with the US TC member insisting only after the decision was gaveled that she did not agree with the text and thus could not join the consensus. (It was not clear from the webcast whether the America TC member was in the room when the decision was taken, although this did not affect quorum). This is reminiscent of a similar situation during the COP16 (in Cancun in 2010) in which it was stated that a UN consensus can be a general agreement even if one country doesn’t agree. Immediately after the meeting, it was unclear to observers if this move by the United States was meant to not support the text without formally blocking it, or whether this was the prelude for an American insistence on re-opening the agreed package at COP28. Some more recent voices out of the US State Department in the meantime, including during some recent pre-COP28 briefings, had high level US representatives confirming a willingness to accept the outcome package after all, based on their understanding that all contributions to the LDF were strictly voluntary, thus making a challenge of the TC outcome document at COP28 less likely.
The text package that was adopted, pending some minor language cleaning up by the UNFCCC Secretariat, sets the broad framing and some ambitious time-lines for the Fund to be quickly operationalized pending a complicated set of detailed ‘if-then’ conditions and requirements in the decision text, especially regarding the set-up of the Fund as a World Bank-hosted FIF. Other provisions mostly in the proposed LDF Governing Instrument are articulated to varying degrees, and often quite vague or aspirational. While this ultimately allowed for an agreement in Abu Dhabi, it also effectively postponed dealing with some of the discord remaining on various issues, such as on allocation or on Fund substructures, which had the potential to destroy the unity of developing countries in the TC discussions, to be handled and resolved by the new LDF Board.
Civil Society Disappointment
The reaction by civil society observers to the outcome was one of disappointment, reflecting an assessment that the approved TC package failed to deliver climate justice. Just before TC5, US-based civil society organizations had published a letter urging the United States to drop their red lines on the location of the fund under the World Bank and on financial inputs to allow for a better outcome.
While observers faced and criticized many restrictions to fully participate in the process (with no opportunity for example to intervene in the last two TC meetings), a substantial number of civil society groups were actively engaged and contributing to the TC process by consistently pushing TC members to focus on the LDF and funding arrangements to deliver grant financing in response to the needs and upholding and strengthening the human rights of impacted local communities and population groups like women and diverse gender groups or Indigenous Peoples made vulnerable through exclusion, discrimination or marginalization. In their submissions and engagement they had consistently called for the establishment of a standalone fund to ensure that the new fund could move beyond finance-delivery and policy business-as-usual approaches to recognize that addressing loss and damage required different and new approaches anchored in justice and compensation; pushed for a fund with comprehensive coverage and funded with first and foremost public sector grant inputs by developed countries in line with CBDR-RC and equity not just between but within countries; asked to ensure voice and vote for affected communities and population groups in the new fund’s governance and decision-making and through the provision of enhanced direct access to grants for those groups through a separate small-grant community funding window under the LDF; and demanded strong environmental and social safeguards and redress and grievance mechanisms ‘fit-for-purpose’ for the unique challenges posed by loss and damage.
As approved, the TC outcome package lacks a clear commitment to human rights in the LDF Governing Instrument beyond a reference to gender-responsiveness in its section on objectives’ and purpose (Annex I, paragraph 4), a glaring omission, which is not compensated by the repetition in the preambular section of the draft decision to the human rights references in the preamble of the Paris Agreement. While human rights obligations for all LDF operations and funded actions can still be enforced through the development of strong policies with explicit language, the missing mandate to mainstreaming human rights considerations into all of the Fund’s activities, which an anchor in the Governing Instrument could have secured, will require vigilance and a consistent civil society push in accompanying the LDF’s operationalization. Similarly, while the LDF Governing Instrument provides for the engagement of stakeholders from women and youth, Indigenous Peoples and environmental groups as active observers in Board meetings and related proceedings (Annex I, paragraph 19), this falls way short of a full-fledged, even non-voting seats at the Board, and will require substantial improvement over current active observer practice in the Green Climate Fund (GCF) or Climate Investment Funds (CIFs) in order to be meaningful and impactful. Initial rules of procedure for the new LDF Board (Annex I, Section D) hold out the possibility for further arrangements and including consultative forums for the LDF to engage with representatives from many groups, including Indigenous Peoples, youth and women, climate-induced migrants and community-based organizations (Annex I, paragraphs 26-28). Such forums or groups could be quite impactful to assist the new Fund with policy advice and formulation, as the experience of the GCF with a now-defunct Private Sector Advisory Group (quite influential in shaping the GCF’s private sector approach) or their newer Indigenous Peoples Advisory Group shows. The promise that the “Fund will develop mechanisms to promote the input and participation of stakeholders […] in the design, development and implementation of activities financed by the Fund” is welcome, but vague. Developing such mechanisms must be an early priority for the Fund Board so as not to repeat the failure of the GCF, where a similar mandate in its governing charter has failed to establish such structured engagement procedures more than a decade into its operations.
Lastly, with the approved location of the LDF under the World Bank, the Fund will not develop its own environmental and social safeguards (ESS), but apply those of implementing partners whose ‘functional equivalency’ with the World Bank’s ESS will be required and tested through modalities to be developed by the LDF Secretariat (Annex I, paragraph 34). This is a missed opportunity for the new Fund to set ESS standards relevant and appropriate for addressing loss and damage (which existing institutions, including MDBs and UN agencies largely have not). Similarly, the ability of impacted communities and people to bring forward complaints and have their grievances addressed is outsourced to the grievance and redress mechanisms of implementing entities, which might have quite differing standards, or inadequate set-ups or practices, such as lacking independence, thus endangering fair and comparable remedy and compensation in case of harms suffered for impacted communities and people who are supposed to directly benefit from the Fund in the first place.
Location of the Fund and its Dedicated, Independent Secretariat
On the morning of the first TC5 meeting day, in a statement read by the TC member from Bhutan on behalf of his constituency, developing countries in a surprise early move signaled their willingness for compromise by conceding in principle that the World Bank could host the new dedicated, independent LDF Secretariat based on an updated and more stringent set of conditions as an interim arrangement for a pre-determined period. Their proposal allowed for a clear end date and mandatory exit strategy with the COP/CMA launching the competitive and transparent process for a host country to transition the Fund as a standalone institution with own legal personality as an international entity. This was a major concession, as developing countries throughout the TC negotiations had steadfast pushed for a standalone fund.
The core relevant passage of developing countries’ request with the pre-determined exit clause, which was not reflected in further iterations of the Co-Chairs’ text proposal and is missing from the final outcome read:
‘Confirm that the Fund established pursuant to decisions 2/CP.27 and 2/CMA.4 will be an independent international organization, after the interim period or the breach of any aforementioned conditions by the World Bank, whichever is earlier, and decides that the Fund shall be conferred independent international legal personality and legal capacity and shall enjoy such privileges and immunities as is necessary for the exercise of its functions and the protections of its interests, in accordance with its governing instrument.’
The now agreed text package in the draft decision (in paragraph 17) invites the World Bank, subject to a set of 11 specified conditions (detailed in paragraph 20), to set up the LDF as a World Bank-hosted FIF with a new, dedicated and independent Secretariat for an interim period of four years starting from COP29/CMA6 in 2024, upon confirmation by the Board that the World Bank is willing and able to meet the conditions. The World Bank for its part has to signal to the new LDF Board within six months of COP 28 in June 2024 (as detailed in paragraph 21) that it can meet the conditions, and has to conclude within eight months after COP28 in August 2024 a FIF hosting agreement that is approved by its own Board of Directors and acceptable to and negotiated with the LDF Board (as described in paragraph 19). While operating with a set of three time-bound triggers that could allow for an exit from the World Bank hosting arrangement (as detailed in paragraphs 21, 22 and 23) and the transition of the LDF to an independent standalone institution, the agreed text now also introduces an additional automatic trigger (in paragraph 24) that could made the hosting of the LDF by the World Bank permanent. If following an independent performance assessment after four years in 2028 the Fund’s Board determines that the World Bank in fact has met all of the conditions in paragraph 20, COP33/CMA10 in 2028 would “invite the World Bank to continue operationalizing the Fund as a FIF, with or without conditions, as appropriate” (paragraph 24). This complex set of ‘if-then’ considerations and triggers is illustrated in Figure 1.
Figure 1: Mapping the timeline and required action for a World Bank-hosted LDF
The rationale behind the length of the transition period (which is similar to a proposal originally introduced by the French TC member already at the TC’s second meeting) is that after four years all operational policies and procedures of the LDF and their interaction and compatibility with World Bank policies and procedures required under the FIF-hosting arrangement would be tested. These include core stipulations and guarantees for developing countries such as allowing “all developing countries to directly access resources from the Fund, including through subnational, national and regional entities and through small grants funding for communities” (paragraph 20e); the full consistency of FIF-hosting requirements with the LDF Governing Instrument (paragraph 20a), in particular the ability of Fund to use its own eligibility criteria (paragraph 20c) and allow non-World Bank members such as Cuba access to funding without interference by the World Bank's Board of Directors (paragraph 20g); and assurance that the LDF Governing Instrument supersedes World Bank policies in instances where they differ (paragraph 20d).
While these conditions would require massive exemptions from the existing FIF-hosting practice and management framework of the World Bank, which for example only foresee MDBs, UN agencies or the International Monetary Fund (IMF) as implementing entities for such a fund and no direct access, it seems pretty certain that the World Bank Board will certify its willingness and capacity to fulfill the TC’s recommended conditions. For one, in contrast to the governance of the LDF, the World Bank’s Board of Directors is shareholder driven, with the same developed countries, which were pushing for the hosting arrangement in the first place holding the majority of shares and therefore able to dominate World Bank policy setting and decision making. Additionally, with developed country shareholders pushing reforms under the World Bank Evolution Roadmap to allow for more World Bank supported concessional lending and private sector engagement in global public goods, including climate change, ‘winning’ the LDF hosting spot can serve as proof that the World Bank evolution to become a ‘climate change bank’ is gathering steam (while glossing over significant shortcomings in the reform approach itself, including its lack of tackling a redistribution of votes or the debt crisis of developing countries, and the need to provide more concessional funding as grants and without limiting investments in core development priorities). Lastly, the experience of the World Bank-hosted CIFs, which were supposed to sunset once the GCF was fully operational, but have now suspended the sunset clause indefinitely, proves how difficult it is to end World Bank-hosted interim arrangements, once established.
The set-up of the LDF under the World Bank, even in the interim, is a huge disappointment for civil society observers active in the TC process who rejected developed countries’ argumentation that this hosting arrangements is the most effective and efficient one. In their assessment, the World Bank in its staff and institutional culture as well as through its operational and policy history and track record is not ‘fit-for-purpose’ to host a new LDF, which should be operationalizing climate justice, not business-as usual. An institution that continues with the orthodox neoliberal economic ‘policy advice’ and practice (including through policy-based loans) towards its ‘client countries’ and with continued funding of fossil fuel projects and support for export-oriented extractivism, all root causes of the climate crisis contributing to loss and damage, and a business model pushing loans and private sector engagement over safeguarding developing countries’ fiscal space and strengthening systems for public safety nets and service provision, cannot generate the innovative new thinking and approaches needed to address escalating losses and damages. These include first and foremost human-rights centered, gender-transformative, locally-led and -implemented solutions, with enhanced direct access to grant funding for populations groups made particularly vulnerable through marginalization and discrimination, including Indigenous Peoples, women and diverse gender groups, children and youth and people living with disabilities. The World Bank’s track record of putting those groups in the driver seat to implement funded actions in line with their own priorities and needs is not convincing many observers..
Concerns have also been raised about the significant costs charged by the World Bank for hosting the Secretariat of the new Fund. In addition to staff costs (as all LDF Secretariat staff would be technically World Bank employees), the World Bank would charge at minimum 17 percent of the operational costs of the hosted LDF Secretariat, and could charge as much as 24 percent in administrative fees, based on its policy of ‘full cost recovery’ and the experience shared by existing World Bank-hosted FIFs such as the Global Partnership of Education (GPE). The GPE experience also saw the independence of its own Secretariat weakened by World Bank policies as well as a loss of identity as an independent organization, instead being perceived as a World Bank fund. While the TC decision document tries to minimize excessive administrative fees by requiring vaguely that in hosting the LDF Secretariat the World Bank “[e]nsures a cost recovery methodology that is reasonable and appropriate” (paragraph 21k), the LDF Board will have to guarantee that the independence of its Secretariat is safe-guarded in day-to-day operations and that the LDF builds a strong identity with a public seeing is as a fund operating under the UNFCCC and serving the Paris Agreement, not as a World Bank entity.
Designation as Operating Entity and Relationship to COP and CMA
Developing countries throughout the TC process had argued for the LDF to become an operating entity of the UNFCCC Financial Mechanism under Article 11 of the Convention text, and serving in the same function under the Paris Agreement. They saw it as an important confirmation for the status of the new fund and a signal for the importance of funding to address loss and damage, as well as providing some safeguards that it would operate in line with the principles and provisions of the Convention, chief among them CBDR-RC and equity. As pointed out by the TC member of Egypt repeatedly such reassurance was especially needed if the LDF Secretariat were to be hosted by the World Bank. Developed countries had opposed this, probably for exactly those reasons, and called such a designation unnecessary for the new Fund and its relationship with governing bodies under the climate regime, including reporting to and being guided by parties under either the COP and/or CMA (with some countries, like Germany, during the TC process trying to limit the relationship of the LDF to the CMA only).
The designation of the Fund in both the decision text (paragraph 4) and the Governing Instrument (Annex I, paragraph 10) in identical language “as an entity entrusted with the operation of the financial mechanism of the Convention, that also serves the Paris Agreement”, which replicated the terminology used in Article 11 of the Convention, is a significant win for developing countries, even if a specific reference to Article 11 in the TC package was dropped in the last text iteration. For developing countries the TC member from Egypt reiterated his constituency’s understanding that its designation is according to Article 11. This establishes the LDF as the third operating entity next to the GCF and the Global Environment Facility (GEF) and ensures that like them the Fund “will be accountable to and function under the guidance of the Conference of the Parties to the Convention (COP) and the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA).” Theoretically, this also establishes its submission under, and the COP/CMA role in assuring its operation in compliance with, UNFCCC principles, mandates and obligations. In practical terms this mean, similar to the GEF and the GCF, that the LDF will submit a yearly report to the COP and CMA and will receive guidance from each body individually on its policies, programming priorities and eligibility criteria, to which it has to respond with appropriate actions (Annex I, paragraph 12). Draft guidance for the operating entities is developed for approval by the COP and CMA by the Standing Committee on Finance (SCF). The decision asks the SCF to develop the arrangements for such guidance to the LDF, to be initially approved by the LDF Board and subsequently by the COP29/CMA6 (paragraph 6), meaning the LDF could receive its first annual guidance in 2024.
Sources of Funding and Financial Inputs
Clearly, the discussion on sources of funding and on who is providing financial inputs to the LDF was the make-or-break issue at TC5 and throughout the process, especially after the developing countries’ signal to compromise on the location of the LDF Secretariat at the beginning of the formal talks in Abu Dhabi, and its resolution in the TC outcome package has significant implications beyond the new Fund. As such, it was clear that the though wrestling for acceptable language was a proxy fight also for the validity and continued application of UNFCCC core financial obligations for developed countries to support developing countries in their climate actions (as prescribed in Article 4.1 and 4.3 of the Convention and reiterated in Article 9.1 of the Paris Agreement) in other climate finance negotiations, the most important being the discussions around a needs- and science-based new collective quantified goal on climate finance (NCQG) to supersede the US$100 billion per year by 2020 target from 2025 onwards.
While the Co-Chairs initial draft package for consideration at TC5 had included language options for differentiation between developed and developing countries’ respective contributions to the LDF and referenced historical responsibility and CBDR-RC (in paragraphs 58 and 62 of this text), a first new iteration produced neutral language only stating that “[t]he Fund may receive contributions from a wide variety of sources of funding, including grants and concessional loans from public, private and innovative sources, as appropriate” (Annex I, paragraph 53 of the first revision) and a general invitation for “all sources of funding to contribute to the Fund for it to operate at significant scale” in paragraph 12 of that version of the draft decision. This reflected the developed countries’ position to indicate that their contribution to the Fund was voluntary, not required or covered by existing agreements and that the contributor base for the LDF needed to be broadened to include as many countries and sources as possible.
For the developing countries, the TC member from Barbados made it clear that the text was unacceptable for his constituency unless a new text version would include a recognition of the scale of loss and damage costs already born by developing countries and accordingly indicate a commensurate significant scale of funding that the LDF and funding arrangements needed to provide, as well as reference agreed language from COP26 in Glasgow (decisions 1/CP.26, paragraph 40 and 1/CMA.3, paragraph 64) that urged developed countries “to provide enhanced and additional support for activities addressing loss and damage associated with the adverse effects of climate change”. He also asked for a footnote to indicate that language agreed at TC5 would not prejudice ongoing climate finance negotiations and decried the text’s effort to retreat from multilateralism to voluntarism.
In a TC members-only negotiation huddle, led by Egypt and France, efforts to agree on compromise language stalled. Apparently neither the Glasgow language (which was text agreed by all parties, but with the United States arguing that it was agreed before the LDF was established at COP27 and therefore not applicable to the discussion for the LDF financial sources), nor agreed Article 9.2 language under the Paris Agreement, which invites other parties than the developed countries to provide financial inputs voluntarily, which developing countries proposed, were acceptable to developed countries. Indeed, efforts by the United States in particular centered around scrubbing any reference to developed countries’ role in finance provision entirely from the text over two more iterations of the text package (which were not publicly posted, but shared and discussed by the Co-Chairs with their respective constituencies midday and early evening of the second day).
In the final iteration of the text released as a ‘take-it-or-leave-it’ package, a previous inclusion and reference to the Glasgow decision text in paragraph 12 of the draft decision was struck and replaced with language urging “developed country Parties to continue to provide support and encourage other Parties to provide, or continue to provide support, on a voluntary basis, for activities to address loss and damage”. While this brings back some differentiation between developed and developed countries to some level, this is substantively weakened by two issues. For one, developed countries, as pointed out by the United States (with rejected both paragraphs), Germany, Denmark, Japan and confirmed by the developed country TC Chair, understand paragraph 12, reinforced by the placement of commas around that text segment, to refer to the “voluntary basis” of support for both developed and developing countries. The language in paragraph 12, irrespective of the placement of commas around “on a voluntary basis”, is also further weakened by a footnote demanded by developed countries that this paragraph is without prejudice to parties’ understandings and interpretations under the Convention and the Paris Agreement. The American TC member’s effort to add a second footnote clarifying that the intent of the entire paragraph was on a voluntary basis, while rebuffed, seems to nevertheless guide developed countries’ understanding of the text.
Additional language in paragraph 13 inviting “financial contributions with developed country Parties continuing to take the lead to provide financial resources for commencing the operationalization of the Fund” is also insufficient. In earlier text versions, this paragraph in the draft decision also included a reference to commencing not just the operationalization of the Fund but also its capitalization, with the reference to capitalization stricken from the final adopted package. This could be read as developed countries only being asked to provide the ‘start-up funding’ to get the Fund administratively going, such a funding for its interim Secretariat, rather than the ambitious initial resource mobilization that is needed. Irritatingly, while not explicit, this might also refer to the requirement under the World Bank’s FIF management framework for combined financial commitments by three contributors totaling a minimum of US$200 million to be secured in order to even set up a FIF under the World Bank, and thus start the ‘operationalization’ as a Word Bank-hosted FIF. This bears the danger that while the Fund could be set up relatively quickly, it might still remain a largely empty shell – despite its set-up under the World Bank. While according to recent news reports the EU and the United States are contemplating some contributions, with the EU claiming it would be ‘substantial’, they are likely to fall way short of what is needed, especially from the American side.
The US and developed country TC members also succeeded in anchoring a passage in the preambular section of the draft decision as part of the agreed package, not yet included in the starting document for TC5, reiterating the understanding from Sharm El-Sheikh that “funding arrangements, including a fund, for responding to loss and damage are based on cooperation and facilitation and do not involve liability or compensation”.
With fights around sources of funding and financial inputs largely reflected in the language of the draft decision, the respective section on financial inputs in the proposed LDF Governing Instrument (Annex I, paragraphs 53-55) is weak, only neutrally confirming in paragraph 53 that “[t]he Fund is able to receive contributions from a wide variety of sources of funding, including grants and concessional loans from public, private and innovative sources, as appropriate”, with a corresponding footnote requested by developing countries that this paragraph likewise does not prejudice ongoing or future negotiations, understandings and interpretations under the Convention and the Paris Agreement (for example with respect to the NCQG). While it is positive that paragraph 54 at least references a four-year replenishment cycle for the LDF, the language is nevertheless a clear retreat from a much more differentiated language on financial inputs that was agreed for the GCF Governing Instrument in 2011 pre-Paris Agreement, illustrating developed countries’ continued retreat from financial obligations since then. Paragraph 29 of the GCF Governing Instrument clearly articulates that the GCF “will receive financial inputs from developed country Parties to the Convention” while allowing under paragraph 29 that the GCF “may also receive financial inputs from a variety of other sources, public and private, including alternative sources.”
Scale of the Fund
Developing countries did not succeed in keeping a reference to a minimum scale of the LDF in the final approved text package, with the TC member of Egypt voicing the absence of scale of resources as part of his reservations to the package. While the Co-Chairs’ initial text proposal had contained paragraph 8 in the proposed LDF Governing Instrument (which was bracketed, denoting non-agreed language) with language requesting that the Fund should be able to program at least $100 billion a year by 2020 as an initial commitment, to be increased over time, the TC outcome document lacks any reference to the Fund’s scale. Developed countries had argued that the scale of the new Fund was not part of the TC’s mandate and thus not under the scope of the negotiations under the TC. Instead, paragraph 55 of Annex I tasks the LDF Board to prepare a long-term “fund raising and resource mobilization strategy”, while paragraph 2 of Annex I just meekly describes the objective of the Fund as aiming “to be a new channel for multilateral finance to assist those countries to respond to loss and damage” [emphasis added], but not pointing out that this would be a significant or the main multilateral channel for such funding. Compare this with language in the GCF Governing Instrument under its section on objectives and guiding principles, which clarifies that the purpose of the GCF “is to make a significant and ambitious contribution” to global efforts to combat climate change.
Board of the Fund, its Composition, and Functions
One of the outstanding issues at TC4 had been the composition and status of the Fund’s Board, although the supervision of the LDF by a Board was not in question. Developed countries in respective US- and EU-TC member proposals were seeking to expand the Board by reserving a number of seats based on scale of contributions (thus replicating the core of the shareholder governance approach in MDBs) while also expressing their willingness to integrate non-party stakeholders as voting members, such as from philanthropy, the private sector, Indigenous peoples or civil society and local communities. Voice and vote for impacted local communities, Indigenous Peoples, women and civil society groups in the LDF Board was also a core ask by civil society observers active in the TC process, as proposed in their version for an LDF governing instrument. Developing countries wanted a Board reflecting regional balance for the groupings under the UN system and equitable representation of parties, led by two Co-Chairs one each from developing and developed country constituencies. Arguing that the LDF was established under a party-driven process, they did not want voice and vote for non-party stakeholders. Instead they suggested to enhance the participation of stakeholders in Board proceedings by building on and improving upon the ‘active observer’ model utilized by the GCF.
The initial text by the Co-Chairs proposed as the starting point for TC5 suggested an equitable and balanced Board with 26 members of 14 developing country and 12 developed country parties, with two seats each for members from Small Island Developing States (SIDS) and Least Developed Countries (LDCs) (Annex I, paragraphs 15 and 16) to be nominated by the relevant regional groups and constituencies, “with due consideration given to gender balance” (Annex I, paragraph 18), while promising that the Board “will further consider ways to enhance the engagement of stakeholders” (Annex I, paragraph 19). To much surprise, given earlier disagreements, this basic composition remained unchanged over several further text iterations and was approved in the final package, with the only language improvement the clear commitment that the Board “will enhance the engagement of stakeholders by inviting active observers, inter alia, youth and women, Indigenous Peoples and environmental non-governmental organizations, to participate in Board meetings and related proceedings.” Whether this reflects a minimum of four active observers for the identified groups, and how the Board will define ‘active’ remains to be seen, but significant shortcomings of the participation model in the GCF will need to be overcome in order to make such participation meaningful and not just window-dressing. Needed improvements include for example the opportunity for active observers to participate equally in Board discussions and sessions, including in Board committees and in-between official Board meetings, receive equal access to full documentation, as well as propose agenda items and request expert inputs.
The proposed draft decision clarifies further that the parties, through their regional groups and constituencies, should nominate their preferred Board members as soon as possible (paragraph 8) so that the first LDF Board meeting could be convened “no later than 31 January 2024” (paragraph 10). The decision text also tasks the Board “to promptly select the Executive Director of the Fund through a merit-based, open and transparent process” (paragraph 11). The full autonomy of the Board to do so and to set the Executive Director’s level of seniority independently to attract high-caliber leadership is one of the conditions for setting up the LDF as a World Bank-hosted FIF (paragraph 20b). The full trust of the LDF Board in the new Executive Director (ED) will be necessary to move ahead with plans for the Board, which is a non-sitting one and likely only to meet a few times per year, to develop an accountability framework to delegate possible funding approvals to the ED as a way to speed of funding approvals, particularly for rapid response measures (see Annex I, paragraph 21i). Such devolved decision-making might prove fundamental for the LDF's ability to react with urgency and to approve funding speedily.
In learning from the experience of the GCF, which had to lengthily and controversially develop voting rules for its board, the draft Governing Instrument already includes voting for cases when the LDF’s Board decision-making by consensus as default modus fails. If no consensus can be reached (and as in the GCF the LDF Board will have to develop procedures for the Co-Chairs to determine that all efforts to reach consensus have been exhausted), then decisions can be taken by a four-fifths majority of members present and voting, meaning 21 votes in a full Board (Annex I, paragraph 25). It is unclear, if this will apply only to funding decisions (as in the GCF) or would also be applied to policy setting.
Fund and Board Legal Status
As a World Bank-hosted FIF, the staff of the new dedicated and independent Secretariat of the LDF, its officials, will receive the privileges and immunities (Ps&Is) that they need for their operation in recipient countries through the legal personality and capacity of the World Bank. Indeed, the difficulties for a new standalone fund to receive the necessary Ps&Is were cited by its proponents throughout the TC process as a chief reason to have the World Bank host the LDF. Paragraph 18 of the draft decision of the approved TC package confirms this expectation that “the officials, property, assets, archives, income, operations and transaction of the Fund” are to be accorded Ps&Is through the set-up of the LDF under the World Bank. It is not clear to what extend this will require exemptions from standard FIF-arrangements, under which implementing entities with own Ps&Is would confer that status for the implementation of funded operations in developing countries, thus for example ensuring exemptions from taxation or national/local procurement rules. (This is one reason, why in the standard World Bank FIF framework implementing entities were limited to MDBs, UN agencies and the IMF with rare, carefully scrutinized exemptions allowed on a case-by-case basis, such as for the recently operationalized World Bank-hosted Pandemic Fund).
What is clear is that the LDF Board is not covered by the Ps&Is conferred by the World Bank through the LDF hosting. The hosting also does not provide legal personality to the Fund as a separate international entity. Both are issues that developing countries were very concerned about in TC negotiations and that some provisions of the TC outcome package seek to address. This is also in reaction to, and applies lessons learned, from the continued difficulties the GCF experiences for not having its own Ps&Is as an intergovernmental organization.
The Fund’s legal status mandating that it “will possess international legal personality and appropriate legal capacity for the exercise of its function”, such as the capacity to enter into contracts or defend its interests in court, is anchored in the proposed Governing Instrument (Annex I, paragraph 9) in general terms. The draft decision of the TC outcome package then indicates one way this might be operationalized. The decision text in paragraph 15 “[d]ecides that the Board of the Fund will be conferred with legal personality and capacity as necessary for the discharge of its roles and functions”. This is necessary for the Board in order to have “the legal capacity to negotiate, conclude and enter into a hosting agreement with the World Bank as interim trustee and host of the Fund secretariat”. The LDF Board is to receive such legal personality and legal capacity through a host country to be selected by the Board “through an open, transparent and competitive process” (paragraph 16). This would go further than prior practice of the Adaptation Fund Board, which only received its legal capacity, but not international legal personality through an act by the German parliament (which is why meetings of the Adaptation Fund Board always take place in Germany, and not in Washington, DC where its Secretariat hosted by the World Bank is located).
This is a very tight timeframe, leaving essentially just ten months (until November 2024 when COP29/CMA6 is to take place), for the LDF Board to constitute itself and convene in likely several meetings needed (with a first LDB Board meeting no later than 31 January, 2024) to formally start the process for a host country for the Board, select it and have the host country confer legal personality and legal capacity to the Board as the prerequisite for the LDF Board to be able to enter into legal contracting with the World Bank for the hosting agreement (after the WB submits a hosting agreement to the Board by 12 August 2024). It is not clear if the Board’s legal personality and legal capacity would be already needed for the required negotiation with the World Bank on the FIF hosting agreement, which would mean that finding a host country for the LDF Board, and concluding a host country agreement with the Board, would have to be turbo-charged. At TC5, there were rumors that one or more countries stand ready to host the LDF Board, and such a formal offer could come at or shortly after COP28.
Interim Secretariat and New, Dedicated Secretariat
The proposed LDF Governing Instrument in its section on the establishment of the LDF Secretariat and its functions has some noteworthy references that indicate lessons learned, including from the experience of especially the GCF Secretariat and those of other climate funds that many developing countries feel are not sufficiently responsive to their needs (Annex I, Section E, paragraphs 41-34). Professional staff under the new dedicated LDF Secretariat will be selected by the Secretariat’s ED (who is selected by the Board) based on experience “relevant to responding to loss and damage and to financial institutions” and “taking into account geographical and gender balance and cultural and linguistic diversity” (Annex I, paragraph 31). The set up of dedicated regional desk for all UN geographic regions, as well as the ability to engage recipient country partners multilingually is also mandated (Annex I, paragraph 33), thus addressing head-on shortcomings with most existing climate funds that operate mainly, if not exclusively in English. This is supposed to help the new Secretariat in taking “a regionally-informed approach in responding to context-specific operational needs, capabilities, and priorities of recipient countries” (Annex I, paragraph 34o). At the GCF, its location in South Korea due to language and time-zone differences has led to an alienation of many developing country partners, in particular from Latin America and the Caribbean; the GCF tries to address this now by considering regional presence and better multilingual engagement. Assisting recipient countries to engage with the LDF processes and procedures is one of the core functions of the new dedicated Secretariat (Annex I, paragraph 34m), which is also tasked to coordinate with the Santiago Network on Loss and Damage (SNLD) to provide technical assistance to access the Fund’s resources (Annex I, paragraph 34n).
Until the new dedicated LDF Secretariat hosted by the World Bank is set up (presumably after COP29/CMA6 when the official go-ahead is given that the World Bank has met all hosting conditions), an interim LDF Secretariat to be jointly formed by seconded staff from the UNFCCC Secretariat, the GCF Secretariat and the United Nations Development Programme (UNDP) will provide support to the Fund Board, including for administrative functions and policy and framework development (paragraph 26).
Eligibility
One of the core fights in the TC process was around which developing countries would be eligible to access the LDF, with developed countries seeking to restrict eligibility largely to specific country groups that they deemed more vulnerable than others to climate change impacts, namely first and foremost SIDS and LDCs (as for example European TC members highlighted in their submission for an LDF governing charter). In contrast, developing countries throughout the negotiations had maintained that all developing countries that are parties to the UNFCCC and Paris Agreement should have access to LDF support and that vulnerable people and communities, to whose benefit the Fund is to operate, can be found in all developing countries irrespective of population size or income status (with the 2022 flood in Pakistan or the 2023 dams burst following extreme rainfall in Libya cited to illustrate the point).
Going into TC5, the phrasing around eligibility seemed largely settled, with language in the Co-Chairs starting text package surviving unchanged through several text iterations and replicated in the final TC outcome package. The draft decision in its preamble recalls the Sharm El-Sheikh decision language which mandates the LDF “to assist developing countries that are particularly vulnerable to the adverse effects of climate change”. The proposed LDF Governing Instrument mirrors this exact language by stating “[d]eveloping countries that are particularly vulnerable to the adverse effects of climate change are eligible to receive resources from the Fund” (Annex I, paragraph 41), even though, in contrast to the GCF Governing Instrument in its paragraph 35, it does not refer to developing country parties to the Convention (and Paris Agreement).
Scope and Structure of the Fund
Throughout the TC negotiations, scope and potential structure of the new Fund had been linked by TC members, and differing visions among developed and developing country members proved contentious. The TC outcome package only partially resolves some of the differences and delegates further decisions in particularly on Fund structure to the Board, which according the proposed LDF Governing Instrument has the right and function to “[e]stablish additional thematic substructures to address specific activities, as appropriate” (Annex I, paragraph 21k).
Regarding the scope of the LDF, developed countries had argued consistently that the Fund should focus on addressing a limited number of priority actions, such as non-economic loss and damage or climate-induced human mobility and for a limited number of developing countries deemed particularly vulnerable, which they saw as important gaps currently not adequately covered by a broader landscape of institutions and processes in responding to loss and damage. This view reflected the understanding that under the existing ‘mosaic’ of institutions and actors already a lot was happening to respond to loss and damage (an impression also given by a technical synthesis report on existing relevant funding arrangements produced for the TC at its second meeting, although many listed examples for funding provided were for adaptation measures). Developing countries on the other hand asked for comprehensive coverage from rapid response after climate-related emergencies, and immediate humanitarian support ended, to addressing rehabilitation, recovery and reconstruction in the medium- to long-term and preparing for and dealing with slow onset events. In this understanding, the current landscape of funding arrangements falls significantly short of addressing loss and damage.
On scope, the TC outcome package reproduces the language of paragraph 1 in Sharm El-Sheikh decisions 2/CP.27 and 2/CMA.4 in the draft decision’s preamble as well as in the proposed Governing Instrument’s paragraph2 describing the objective and purpose of the Fund. Compromise language in the Governing Instrument then provides an indicative, but not exclusive list of challenges that the LDF might provide funding for, such as climate-related emergencies, sea level rise or relocation (Annex I, paragraph 5), while subsequent paragraphs try to prescribe financial provision with reference to a “focus on priority gaps with the current landscape of institution”, clarifying that such support will be “complimentary and additional” (Annex I, paragraph 6), for example “complementary to humanitarian actions taken immediately after an extreme event” (Annex I, paragraph 7), and could include the development of national response plans, or efforts to support “safe and dignified human mobility in the form of displacement, relocation or migration” (Annex I, paragraph 8).
While it will be the Board that defines the range of actions that the LDF will support, and the structures and modalities through which financing will be provided (Annex I, paragraph 21b), the mandated focus on priority gaps could become problematic if the Board instituted some sort of additionality test or documentation requiring recipient country actors to prove that they would not be able to receive the requested support elsewhere. This would be counterproductive and must be avoided, to ensure the speed and unbureaucratic access, especially after extreme weather events.
The draft Governing Instrument is silent on substructures, other than confirming the Board’s ability to add them as needed (Annex I, paragraph 21k). This indicates that there was no agreement among TC members between a set of articulated thematic funding windows all drawing from the same joint funding pot that developing countries wanted and the more structured approach of differentiated sub-funds each with its separate eligibility, access and programming features that developed countries suggested and which would have make it possible for contributors to earmark financial inputs to a specific sub-fund. The United States for example had suggested to set up a specific ‘small-markets’ sub-fund targeting SIDS, while the proposal of EU TC members had included a human mobility sub-fund and a small grants response sub-fund, the latter picking up on a civil society proposal for a dedicated small-grants community window under the new Fund. With the language in the proposed LDF governing vague, the Board retains the flexibility to set up targeted windows and funding programs as needed, including to focus on community access, but should not establish sub-funds that could lead to imbalanced and biased funding allocation reflecting contributor preferences over recipient countries’ and communities’ priorities and needs.
Access Modalities
In all TC meetings, developing countries had highlighted direct access to LDF funding for recipient countries as a priority. The issue of direct access and the restrictions the World Bank’s FIF framework and guidance placed by limiting access for funding to international implementing entities were one major argument for the push for a standalone fund. For most developing country TC members, the term ‘direct access’ actually refers to essentially two different modalities to access LDF funding, namely direct access as budget support to national governments, as well as using subnational, national or regional direct access entities, as those currently accredited to other climate funds, especially the GCF, GEF and the Adaptation Fund. Both modalities are now listed explicitly in the proposed Governing Instrument (Annex I, paragraph 48a and 48b). It is not clear if the reference to direct access entities accredited with other funds would mean that they can automatically serve as implementing partners for the LDF as long as they are in good standing with either of those funds; grandfathering them in would make sense, as they are already undergoing rigorous (some would say, especially in the case of the GCF, too onerous) accreditation and re-accreditation procedures. As elaborated, both forms of direct access are also listed in the draft decision text as part of the conditions the World Bank needs to fulfill for the hosting agreement for the LDF Secretariat (paragraph 20e).
While direct access opportunities are indicated, this still allows for the more ubiquitous international access via multilateral banks or agencies or developed countries’ bilateral entities (Annex I, paragraph 48c), with the conditions in the draft decision for World Bank FIF-hosting clearly opening the pathway for bringing in other international or bilateral entities beyond the MDBs, the UN agencies and the IMF in (paragraph 20f). In developing its own access modalities and programming requirements, the LDF Board would be well advised to consider the experience and trajectory of access to the GCF, where despite a majority of direct access entities among GCF accredited implementing partners (with 74 of 118 accredited entities) still only one fifth of the GCF’s resources is programmed via direct access. One potential complication for LDF implementation partners could be that under the World Bank-hosted FIF ‘the functional equivalency’ of an entity’s fiduciary standards and environmental and social safeguards with the World Bank’s own standards or those of MDBs is required. Such language can be found in the draft Governing Instrument with reference to the entities supporting national governments with direct budget support (Annex I, paragraph 48a). It is also referenced explicitly in sections dealing respectively with fiduciary standards (Annex I, paragraph 66) and environmental and social safeguards (Annex I, paragraph 67), where in both cases the Secretariat is advised to “support the strengthening of the capacities of direct access implementing entities, where needed, to enable them to attain functional equivalency” with either the World Bank’s fiduciary standards or its environmental and social safeguards, “based on modalities that will be developed by the Board” (Annex I, paragraphs 67 and 68). The draft Governing Instrument mandates the Fund to “develop simplified procedures and criteria for fast-tracked screening to determine the functional equivalency (Annex I, paragraph 49). While not explicitly calling it such, this is tantamount to an accreditation system for LDF implementing partners, especially direct access entities.
A significant win for the new Fund, and – depending on how it is operationalized – with the potential to leapfrog to enhancing access to funding for the people and communities already most severely impacted by loss and damage, is a clear commitment in the draft Governing Instrument to develop access modalities for “small grants to support communities, Indigenous Peoples and vulnerable groups and their livelihoods, including with respect to recovery after climate-related events” (Annex I, paragraph 48d). This was one rare issue where developed and developing country TC members as well as civil society observers were in agreement that the LDF has to go way beyond current practice and scale in allowing for such targeted support in order to be ‘fit-for-purpose’ and serve climate justice. Direct access support for all developing countries through small grants funding for communities is also part of the catalogue of conditions for the World Bank-FIF hosting (paragraph 20e). However, the language leaves it open whether such access can be direct (allowing groups to directly receive funding via a small grants window as civil society advocates would like to see) or facilitated through either direct budget support or national actors via national distribution channels to the local level to reach communities or building on or replicating existing small grants approaches intermediated by international agencies, such as the GEF/UNDP small grants program. It will be also important for the LDF to ensure that a significant portion, not just a tokenistic amount or a ‘pilot’, is programmed via such small grant community-focused approaches, and that it grows in scale and stature commensurate with the overall development of the new Fund over time.
As pushed especially by LDCs (including in an earlier submission), the final TC outcome package in its draft Governing Instrument also achieved consensus and prominently anchored a commitment for the development of rapid disbursement modalities (Annex I, paragraph 48e), which in the initial Co-Chairs was bracketed.
Allocation
Probably no other outstanding TC issues, over which developed and developing countries wrestled until the last minute, had the same explosive power to blow up the unity among the developing country TC members, as the question of how to allocate LDF resources. Developed countries in the TC exploited this by arguing that LDCs and SIDS under their proposed structures and access and eligibility criteria for the Fund would be the core beneficiary country groups, such as under a dedicated sub-fund for SIDS and LDCs proposed by EU TC members. Representatives from SIDS and LDCs on the other hand indicated that they needed assurances from their developing country constituency that their special circumstances, capacity constraints and funding needs (as also acknowledged under Article 9.4 and 9.9 of the Paris Agreement) would be considered in a Fund allocation approach. For the Alliance of Small Island Developing States (AOSIS), the TC member from Antigua and Barbuda throughout the TC process had repeatedly indicated that they needed to see a commitment for a guaranteed financial allocation for SIDS, irrespective of whether this could be secured through a special window, sub-fund or program. Such a clear ringfencing of a potentially significant part of LDF resources was opposed by other developing country TC members, especially from Latin America, arguing that their climate-vulnerable communities should not be left out. This sharp reaction might be a legacy of the experience under the GCF allocation framework, which reserves 50 percent of its funding for adaptation (thus roughly 25 percent of its overall resources) for LDCs, SIDS and African states, with Latin American countries lamenting what they perceive as disadvantage in accessing GCF resources. Developing countries’ efforts during TC5 thus centered on squaring the circle by finding compromise language on allocation reflective of the different demands within their constituency.
The approved language in the draft Governing Instrument is carefully calibrated and mandates the Board to develop, operate and dynamically evolve through regular review a resource allocation system for the Fund (Annex I, paragraph 60) that takes into account the needs and priorities of developing countries, and especially those of climate-vulnerable communities (Annex I, paragraph 59a), and considers the scale of climate impacts of particular climate events respective to national circumstances and capacities (Annex I, paragraph 59b). Most importantly, the commitment for a “minimum percentage allocation floor for LDCs and SIDS” (Annex I, paragraph 59f), as demanded by those country groups (with the scale of the set-aside yet to be determined), is counterbalanced by the requirement “to safeguard against the overconcentration of support provided by the Fund in any given country, group of countries or region” (Annex I, paragraph 59c) incorporating language proposed by the TC member from Columbia.
While best available data and information from relevant entities including the Intergovernmental Panel on Climate Change or national and regional agencies is supposed to support the Board in determining allocation needs and priorities, the section on allocation recognizes “that such data, information or knowledge may be limited for specific countries and regions” (Annex I, paragraph 59d and 59e). It also explicitly encourages the consideration of “pertinent knowledge from Indigenous Peoples and vulnerable communities on exposure and sensitivity to the adverse effects of climate change and on loss and damage” (Annex I, paragraph 59d). This language is indicating applied learning from the experience of the GCF, where a demand for countries to prove the ‘climate rationality’ of their funding requests was especially challenging in the case of proposed adaptation measures due to data availability challenges, not the least for local adaptation contexts.
Complementarity, Coordination, and Coherence
How to secure and operationalize complementarity, coordination and coherence between the Fund and the funding arrangements was one of the outstanding issues going into TC4. Developing country TC members proposed the LDF as the key coordination actor to ensure complementarity and coherence across broader funding agreements responding to loss and damage within and outside the UNFCCC, including by providing guidance to other actors. Developed country TC members saw the LDF just as one of many relevant entities in the mosaic or landscape of actors and institutions, but without a primary coordination role. They proposed instead that such coordination, as part of the broader funding arrangements, could be taken on through the establishment of a High Level Coordination Council situated outside of the UNFCCC.
The approved draft Governing Instrument includes a dedicated section on complementarity and coherence (Annex I, paragraphs 53-56), which underscores the key role of the Fund “in coordinating a coherent global response to loss and damage, including between the Fund and the funding arrangements” (Annex I, paragraph 53). It also tasks the Fund to develop methods to enhance the complementarity between its own work and that of other relevant actors (Annex I, paragraph 55). It gives the Fund a role in promoting coherence in programming at the national level in recipient countries with a focus on addressing priority funding gaps through its provision of “additional and complementary sources of finance” (Annex I, paragraph 56). As indicated earlier, such language could be problematic if it requires a mapping or determination for funding requests that the LDF’s resources are needed because no other actor is able or willing to provide the needed finance at the national level. It remains to be seen how the Fund’s Board seeks to operationalize this requirement, without creating undue bureaucratic hurdles or potentially impeding access.
Recommendations on the New Funding Arrangements
Throughout the TC process, developed countries had complained that the discussions about new funding arrangements (as mandated under paragraph 5c of the Sharm El-Sheikh decisions establishing new funding arrangements and the fund) were taking a backseat to efforts to articulate and agree on detailed provisions for the LDF with a draft governing charter as outcome. They had proposed and pushed for a long list of detailed recommendations to be advanced to the COP28, such as those articulated in the US submission and the joint EU TC members’ one. Developing countries clearly pushed for a focus of the TC process in developing the Fund’s terms of reference, arguing that the UNFCCC process did have neither the mandate nor the standing to compel institutions and actors outside of the UNFCCC, such as humanitarian agencies or MDBs, to act on any of the TC’s recommendations. They therefore argued for tight, largely overarching and generalized language instead of detailed specificity.
Going into TC5, the initial text package proposed by the TC Co-Chairs spelled out concrete recommendations for the funding agreements in less than one page, with an additional two pages discussing the funding arrangements’ objective and scope, efforts for coordination and complementarity, the relationship between funding arrangements and the Fund, as well as a proposed high level dialogue. Given the core issues of location and sources dominating limited remaining negotiation time at TC5, the final text on funding arrangements as agreed under Annex II of the TC outcome package saw few changes through several text iterations. The most significant one was some weakening of prior language under the section on the relationship between the Fund and funding arrangements that would have asked to Board “to recommend to the COP/CMA standard procedures to identify sources, funds, process and initiatives under and outside the Convention and the Paris Agreement that constitute the Funding Arrangements” by ensuring compliance with UNFCCC principles , their focus on addressing loss and damage and conformity with the work of the Warsaw International Mechanism (WIM) and Santiago network. This language was similar to a civil society proposal for specific criteria for assessing whether finance under the new funding arrangements really was addressing loss and damage and new and additional, or incompatible with equity considerations and climate justice.
New approved language under the TC outcome package now simply asks the Fund’s Board for the development of standard procedures to identify such sources, funds, processes and criteria under and outside the Convention and the Paris Agreement that assist developing countries in responding to loss and damage solely “for the purpose of strengthened coordination and complementarity,” but without critically assessing their relevance or compliance with core provisions under the climate regime (Annex II, paragraph 10).
Annex II makes it clear that the purpose of the new funding arrangements is a focus on “providing and mobilizing new and additional resources” (Annex II, paragraph 3) and increasing coherence and complementarity across the loss and damage finance architecture by avoiding duplication of efforts, sharing best practices and promoting synergies while maximizing and leveraging comparative advantages, not only on the international, but also on regional and national levels (Annex II, paragraphs 4 and 5).
The Fund is supposed to “act as the platform for coordination and complementarity within the funding arrangement” via operationalizing a high level coordination and complementarity dialogue (Annex II, paragraph 8). Annex II goes into significant detail on the composition, purpose and outcome of the high-level dialogue to be annually co-convened by the Fund and the UN Secretary General (Annex II, paragraph 12) in order to structure and facilitate knowledge exchange, capacity-building and identify opportunities for collaboration as well as to scale up existing, or initiate new funding arrangements among participating entities (Annex II, paragraph 11). The dialogue is supposed to bring “no more than 30 high-level representatives” from participating entities together, among them the Fund, the MDBs, the IMF, relevant UN agencies, other multilateral climate funds, the International Organization for Migration, the WIM Executive Committee and the Santiago network, as well as loss and damage experts representing different regions and perspectives, including from civil society, Indigenous Peoples and the philanthropic sector (Annex II, paragraph 13). The LDF Board is to report on the high level dialogue and its recommendation through its annual reports to the COP and CMA (Annex II, paragraph 11f) and the dialogue is supposed to consider and follow up on the guidance of these bodies (Annex II, paragraph 15).
Annex II, paragraphs 16-25 then list broad recommendations for funding arrangements complemented by some more targeted recommendations for specific groups of actors or individual entities, although not going into the level of detail that developed countries had encouraged. The recommendations explicitly highlight the critical role for pre-arranged finance to address a variety of challenges (Annex II, paragraph 16). They encourage the provision of finance through a variety of sources, including innovative sources (the only reference throughout the discussion of funding arrangements), but only in very general terms; the paragraph instead highlights that new and existing funding arrangements must target people and communities in climate vulnerable situations, including women, children and youth, Indigenous Peoples and climate-induced migrants and refugees, which provides a welcome spotlight on the need to address this persistent weakness of many current funding approaches (Annex II, paragraph 17) . While during the TC proceedings innovative sources including taxes and levies based on the polluter pays principle had been discussed, developing countries had pushed back on specific recommendations for the global application of such levies and taxes (for example on air or maritime transport), fearing that they would have negative incidence on many developing countries.
The recommendations on funding arrangements name-check and welcome a number of initiatives and existing facilities, including Early Warnings for All, Climate Risk and Early Warning Systems (CREWS) and the Global Shield against Climate Risk urging them to increase their support (Annex II, paragraph 20). They call for the scaling up of anticipatory approaches through mechanisms such as the START Network or country-based pooled funds (Annex II, paragraph 23) and encourage further regionalization of approaches such as the establishment of the Pacific Resilience Facility (Annex II, paragraph 24). UN agencies and MDBs as well as bilateral agencies are invited to include in their annual reports information on their efforts to assist developing countries in responding to loss and damage starting from 2024 (Annex II, paragraph 21). While such increased transparency and accountability through improved reporting is welcome, this highlights the need for common criteria or a shared understanding of what constitutes finance provided in response to loss and damage to avoid a possible massive relabeling and “loss-and-damage-washing” effort of existing, often adaptation focused resources.
An acknowledgement of the importance of scaling up support for “social and adaptive protection mechanisms”, directed at MDBs and the International Labour Organization, is welcome (Annex II, paragraph 22), although the wording does not make it clear whether this focuses on strengthening public social safety nets or looks instead to private sector focused insurance-based solutions. Lastly, multilateral climate funds are asked to better integrate in their activities a focus on and consideration of the needs of climate-induced migrants and refugees (Annex II, paragraph 25). The latter is welcome and reflected a strengthened focus throughout the TC discussions on this particularly affected group and its persistent marginalization from existing policy setting and funding processes.
Next Steps at COP28 and Beyond
While the United States initially refused to join the consensus for the TC outcome package in Abu Dhabi, US State Department officials since then have indicated their willingness to accept the compromise package. This makes it significantly less likely that the Abu Dhabi package will be re-opened at COP28/CMA4 before both governing bodies with their respective decisions at the COP28 climate summit in Dubai formally kick the operationalization of the new Fund into high gear. And even though some other countries as well had voiced some reservations and expressed their dissatisfaction with elements of the outcome (as Egypt did with respect to a missing indication of the scale of the LDF), because the TC approved the draft decision, LDF governing instrument and recommendations for funding arrangements as a package, a ‘surgical’ approach to re-opening is unlikely.
While some textual improvements for some of the core shortcomings of the package in the eyes of developing and developing countries could be possible, the danger is high that if re-opened and kicked up the political ladder at COP28 indiscriminate bits and pieces could be traded off as part of the broader COP28 package (without much regard for technical feasibility). There seems to be little appetite for this, not the least by the incoming COP28 Presidency from the United Arab Emirates (UAE), which already has to deal with the major construction site that is the negotiated comprehensive COP28 outcome. The UAE Presidency undoubtedly hopes for the relatively smooth approval of the TC recommendations as a major success story of a Dubai COP action package. This will allow parties to focus their energy – and limited willingness for compromise – instead on delivering first and foremost a precedent-setting decision on the first Global Stocktake with strong mitigation signals; increase the possibility of decisive commitments on a global energy transition with a bold renewable energy goal and real commitments toward fossil fuel phase-out; advance the Global Goal on Adaptation and the related push for a meaningful action plan to reach the promised doubling of adaptation finance by 2025; and deal with the continued quagmire of climate finance negotiations that is the NCQG process, which needs the highly political signal of potential scale to come out of Dubai.
To further improve on the TC outcome, the strategy by some parties and country groups could therefore focus on getting language relevant to the LDF and funding arrangements into other decisions texts at COP28, such as a decision on the GST outcome and next steps to raise overall ambition, including on finance provision as a means of implementation, or in a procedural NCQG decision. For example, this could attempt to address the mandate for developed countries to take the lead in the finance provision for addressing loss and damage or provide an indicate scale of the LDF. Both are sadly absent from the TC outcome package, but essential for the COP28 to deliver on climate justice. Some significant commitments by developed countries at COP28 to contribute for the initial capitalization of the Fund, as signaled by the European Union recently, could help to pave the way.